Friday, July 25, 2008

Risk of Inventory

A great Ski retailer in Massachusetts, Roger Buchika once said, “the less you buy the more money you make”. What Roger meant was that too much inventory can put you out of business quick. As a matter of fact the biggest mistake retailers make is over buying. Over buying can surely cause Cash flow problems and too much inventory poses a significant risk to the business owner.

Having too much inventory is not only the mistake of retailers. Manufacturers and distributors suffer from the same problem as well. A CFO responsibility and a CFO Service is to help the business owner recognize bad buys or slow moving produced products early. Once recognized, price them to sell, get the cash and then buy and produce good inventory that sells and turns quickly. Calculating inventory turnover ratios is a good indicator of how well inventory is moving. Another service the CFO can perform is to prepare expected or forecasted inventory turnover ratios for specific products and monitoring their performance to determine early enough as to whether that product is productive.

If your company has old or stale inventory look to move it immediately get the cash and re-invest it in more productive inventory.